Costco Strategy Analysis

1. A Case Study on
COURSE: MGT711 GROUP: E
Md Rifath Alam Mahin (21374013)
Swarno Kanti Sarker (21374001)
Ayesha Siddika Rumana (21374026)
Md. Ikhtiar Hasan (21374027)
Md Shafayet Islam (21374039)
Gouri Sarker (21174031)

2. Loss: 7,50,000
206 Locations – $16
Billion Sales
1979 – Two Stores,
900 employees, $1
Million Profit
1993 – Costco + Price
Club (Merger)
Deep discount
warehouse
1985 - Public
PriceCostco – Costco
Companies Inc. – Costco
Wholesale Corporation
Price Club – Sol Price
(1976)
Jim Sinegal (Fed-
Mart)
1984 – Five Stores &
200,000 members
Costco – Seattle
(1983)
THE JOURNEY
2018
Membership Warehouses: 750
Card Holders: Over 90 Million
Membership Revenue: 2.85 Billion
Footfall: 3 Million Per Day
Annual Sales Per Store: $170 Million
MISSION
“To continually provide our members
with quality goods and services at
the lowest possible prices”
VISION
“A place where efficient buying and
operating practices give members
access to unmatched savings”

3. W T
S O
STRENGTHS
WEAKNESSES
OPPORTUNITIES
Low Prices
Top-Notch Return Policy
Customer Loyalty
Home Grown Talents in Top Management
Employee Turnover is very low
Overheads Cost is Low
Globalization & Expansion
Respectable Image
Membership Growth
Lower Inflation Rate & Higher GDP
Ecommerce Boom
Dependent on Cheap Gas Prices
Less Assortments
The Overall Ambience is Not Luxurious
Primary focus on B2B
Membership Only
Competitors like Sam’s Club
Highly Dependent on USA
Ecom Channel under-developed
Limited Target Market
High Expectations
Dependent on Suppliers
THREATS

4. BUSINESS MODEL & STRATEGY
• Membership only warehouse club business model
• Customers get low-cost products in return of a membership fee
• Non-members can accompany but buying power remains with the member
Rapid inventory
Turnover &
Operating efficiency
Profit @ low gross
margin
Volume purchasing
Efficient distribution
Reduced handling
of merchandise
Low price
Limited selection of
quality merchandise
Wide range of
merchandise
categories
Pricing
Product Selection
Treasure Hunt Merchandising
Low-Cost Emphasis

5. EXTERNAL ENVIORNMENT
POLITICAL SOCIAL ECONOMICAL
Political stability of
major markets
More complex
environmental
policies
Animal rights
policies
Increasing
international trade
agreements
Rapid growth of
developing markets
Slow growth of
American market
Increasing demand
for business social
responsibility
Animal rights trend
Environmentalism

6. EXTERNAL ENVIORNMENT (Contd.)
TECHNOLOGICAL ENVIORNMENTAL LEGAL
Increasing e-
commerce
transactions
Increasing business
automation
Rapid rate of
technological
innovation
Changing
employment laws
Tax reforms
GMO regulations
Climate change
Low-carbon lifestyles
Collapsing bee
colonies
Enhance the energy
management
systems

7. FIVE FORCES ANALYSIS
Weak Strong
Large number of firms
High variety of firms
Low switching costs
Low switching costs
High availability of substitutes
High quality of information
Low switching costs
High availability of substitutes
High performance-to-price ratio
of substitutes
Low switching costs
Moderate cost of doing business
High economies of scale
Large population of suppliers'
High overall supply
Low forward integration
Moderate

8. W T
S O
Liquidity Ratio
0.000
0.200
0.400
0.600
0.800
1.000
1.200
1.400
1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018
Current Ratio Analysis
• The gradual declination of the curve shows that the company is not in a healthy financial condition.
• Also, ratio under 1 suggests that the company would be unable to pay off its obligations if they have.
• Less working capital shows that company does not have sufficient internal funds
Year Current Assets Current Liabilities Current Ratio Working Capital
2000 $ 3,470 $ 3,404 1.019 $ 66
2005 $ 8,238 $ 6,761 1.218 $ 1,477
2014 $ 17,588 $ 14,412 1.220 $ 3,176
2015 $ 16,779 $ 16,539 1.015 $ 240
2016 $ 15,218 $ 15,575 0.977 $ (357)
2017 $ 17,317 $ 17,485 0.990 $ (168)
FINANCIAL OVERVIEW

9. W T
S O
Profitability Ratio
• Operating expense has been increased in parallel with sales
• Net profit margin in fluctuating and low
Fiscal
Year
Net Sales Total Revenue
Total Operating
Expense
Net Income
Net Profit
Margin
2000 $ 31,621 $ 32,164 $ 31,126 $ 631 1.96%
2005 $ 51,862 $ 52,935 $ 51,460 $ 1,063 2.01%
2014 $ 110,212 $ 112,640 $ 109,420 $ 2,058 1.83%
2015 $ 113,666 $ 116,199 $ 112,575 $ 2,377 2.05%
2016 $ 116,073 $ 118,719 $ 115,047 $ 2,350 1.98%
2017 $ 126,172 $ 129,025 $ 124,914 $ 2,714 2.10%
1.65%
1.70%
1.75%
1.80%
1.85%
1.90%
1.95%
2.00%
2.05%
2.10%
2.15%
2000 2005 2014 2015 2016 2017
Net Profit Margin
FINANCIAL OVERVIEW

10. W T
S O
Leverage Ratio
• Indicates a heavy and perhaps excessive reliance on debt, lower creditworthiness, and weak balance sheet strength
Fiscal
Year
Long Term Debt
Total Stockholder's
Equity
Debt-to-Capital
ratio
2000 $ 790 $ 4,240 15.71%
2005 $ 711 $ 8,881 7.41%
2014 $ 5,093 $ 12,515 28.92%
2015 $ 4,852 $ 10,617 31.37%
2016 $ 4,061 $ 12,079 25.16%
2017 $ 6,573 $ 10,778 37.88% 0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
35.00%
40.00%
1995 2000 2005 2010 2015 2020
Debt-to-Capital ratio
FINANCIAL OVERVIEW

11. RECOMMENDATION & CONCLUSION
Expansion – E-Commerce
& Foreign Markets
Increase – Focus & Foreign
Investments
Target – Lower middle-
class people as well
Efficient – Customer Policy
Implement – Modern
Communication
Diversify – Selection of
Merchandise
Build – More Warehouses
Restructure – Cost &
Pricing Strategies

12. A Case Study on
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